Mortgage Banking Flashcards
7 cards from real Banking practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Mortgage Banking flashcards as text
What is the primary purpose of the secondary mortgage market?
Answer: To provide liquidity by buying and selling existing mortgage loans
The secondary mortgage market (e.g., Fannie Mae, Freddie Mac) purchases existing mortgages from lenders, providing liquidity so lenders can originate more loans.
What does LTV (Loan-to-Value ratio) measure?
Answer: The loan amount divided by the appraised value of the property
LTV is calculated by dividing the loan amount by the appraised or purchase price of the property and is expressed as a percentage.
Which government-sponsored enterprise (GSE) is primarily focused on the U.S. mortgage market?
Answer: Fannie Mae (FNMA)
Fannie Mae (Federal National Mortgage Association) is a GSE created specifically to expand the secondary mortgage market and support homeownership.
What is a mortgage escrow account primarily used for?
Answer: Collecting and paying property taxes and insurance on behalf of the borrower
Escrow accounts collect monthly contributions from borrowers so that property taxes and homeowner's insurance premiums can be paid when due.
What is the standard maximum Debt-to-Income (DTI) ratio used in conventional mortgage underwriting?
Answer: 43%
Most conventional mortgage programs use a maximum back-end DTI of 43%, though some automated underwriting approvals allow higher ratios with compensating factors.
What does mortgage 'amortization' describe?
Answer: The gradual reduction of the loan balance through scheduled principal and interest payments
Amortization is the schedule by which each payment reduces the outstanding principal balance while also covering interest, resulting in full payoff at the end of the loan term.
Under the TILA-RESPA Integrated Disclosure (TRID) rule, which document must a lender provide to a borrower within 3 business days of receiving a mortgage application?
Answer: Loan Estimate (LE)
The Loan Estimate replaced the former Good Faith Estimate and TIL disclosure under TRID, giving borrowers a standardized three-page summary of loan terms and estimated costs.